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Fed’s Powell, Jobs Dominate Economic Calendar

Get ready to see and hear a lot of Jerome Powell this week.

The Federal Reserve chairman gives his semiannual testimony to both houses of Congress this week, appearing on Tuesday and Wednesday where he is expected to be asked about the Fed’s aggressive stance on interest rates.

Powell will speak ahead of the week’s big economic event, the jobs report for February from the Labor Department set to be released Friday morning. The report follows the blockbuster 517,000 jobs added in January with economists forecasting 215,000 employees were added to payrolls. But given how strong the labor market has been, markets braced for a surprise.

The labor market and wage inflation are the key issues facing the Fed now as it remains committed to raising interest rates. While there has been significant progress on inflation – the consumer price index has dropped from a roughly 9% level to the mid-6% range – it is still well above the Fed’s target of 2% average annual inflation.

Members of both political parties are likely to pepper Powell on how much the Fed intends to raise interest rates later this month, with markets pricing in another increase of 25 basis points, but increasingly there is a belief that a hike of 50 basis points is on the table.

Political Cartoons on the Economy

“The economy is still too hot, and even with sizable revisions to hiring and consumption data, it requires further rate hikes by the Fed,” Joseph Brusuelas, chief economist at RSM US, wrote on his Real Economy blog Monday morning.

In addition to the monthly jobs number, Wednesday will bring the ADP private payrolls report for February and the job openings number for January. Last month, job openings rose unexpectedly, but forecasts are for a drop to around 10.5 million from the 11 million reported a month ago.

A week of strong jobs data will complicate matters for the Fed, as a tight jobs market keeps wages elevated. Those have been running close to a 5% annual level of increase.

Markets, meanwhile, have been showing a bipolar personality, seeing between sharp sell-offs and surges. The bond market, in particular, is offering yields that have not been seen since the days of the Great Recession that began in 2007.

The politics of the Fed’s behavior are also becoming an issue, with progressive Democrats such as Sen. Elizabeth Warren of Massachusetts is questioning why the central bank is using policies designed to increase unemployment and conservatives unhappy with some Fed officials’ comments on matters such as socially conscious investing and climate change.

Now that the 2024 presidential election campaign is well underway, Powell can look forward to sharp questioning from Democrats and Republicans alike. He is not likely to wilt under the pressure, but any hint of any change in direction – however tiny – will be amplified.

“2023 has surprised the investor consensus with strong growth and perky inflation,” BCA Research wrote Monday morning, “and we are increasingly being asked if growth is poised to break out.”

“Although we think overheating is more likely in 2023 than a recession, our base case remains a deceleration en route to the start of a recession in the first half of 2024,” it added.

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